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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 30, 1997
Commission File Number 1-10226
ROWE FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 54-0458563
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Registrant's telephone number, including area code: (540) 389-8671
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
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Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 12, 1998 (the exclusion from such amount of the market
value of the shares owned by any person shall not be deemed to be an admission
by the registrant that such person is an affiliate of the registrant) was
$79,173,199.
As of February 12 1998, there were issued and outstanding 12,544,327 shares
of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT WHERE INCORPORATED
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Portions of Annual Report for the year ended November 30, 1997 Parts II and IV
Portions of the Annual Proxy Statement for the year ended November 30, 1997 Part III
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PART I
ITEM 1. BUSINESS.
GENERAL
The Company is a designer and manufacturer of furniture, primarily consisting of
sofas, sleeper sofas, loveseats and chairs. The Company's products are sold
primarily in the middle to upper-middle price range, with sofas customarily
retailing between $600 and $1,400.
The Company sells its products nationwide through an exclusive sales force of
commissioned employees to over 1,000 national, regional and local retailers
consisting of furniture chains, independent furniture retailers, warehouse
showrooms, and over 100 Rowe ShowPlace locations. Ten of the Rowe ShowPlace
locations are operated by the Company. A Rowe ShowPlace is either a dedicated
gallery area within a retail furniture store or a freestanding retail furniture
store where the Company's products are displayed on an exclusive basis. The
Company's manufacturing facilities consist of four plants, two of which are
located in Missouri and two of which are located in Virginia. In addition to
manufacturing its own line of furniture, the Company manufactures furniture
frames and kiln-dries hardwood and pine lumber for outside customers. As of
January 1, 1998, through a newly-created, wholly-owned subsidiary, The Wexford
Collection, Inc., the Company manufacturers a line of solid wood casual
furniture. This subsidiary was formed to acquire the assets and liabilities of
J & M Designs, Ltd., d.b.a. The Wexford Collection, a ten year old manufacturer
located in Carson, California.
Rowe Furniture Corporation was founded as a furniture manufacturer in June,
1946, and its original manufacturing facility is located in Salem, Virginia. In
1968, the Company expanded its operations to the Midwest with the addition of
its first facility in Missouri.
The Company is incorporated under the laws of Nevada. Its principal
administrative offices are located at 239 Rowan Street, Salem, Virginia 24153,
and its telephone number is (540) 389-8671. Unless the context indicates
otherwise, references herein to the "Company" include Rowe Furniture
Corporation, its predecessors, and its subsidiaries.
Effective December 3, 1995, the Company merged its four manufacturing
subsidiaries (Rowe Furniture Corporation-Virginia, Rowe Furniture Corporation-
Missouri, Salem Frame Company, Inc. and Himmelberger-Harrison Company, Inc.)
into a wholly-owned subsidiary, Rowe Manufacturing, Inc. On December 1, 1997,
all of the assets of Rowe Manufacturing, Inc., exclusive of intellectual
property, were transferred to a new wholly-owned subsidiary, Rowe Industries,
Inc. Rowe Manufacturing, Inc. was then merged into the Company. These
reorganizations were effected to simplify the organizational structure and
improve internal reporting.
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December, 1997, The Wexford Collection, Inc., a new wholly-owned subsidiary was
created to acquire the assets and liabilities of J & M Designs, Ltd.
Management believes that recent consolidation in the retail furniture industry
has increased the importance of maintaining strong relationships with customers
and responding effectively to their demands. The Company's objective is to
provide enhanced service and value to its customers through quick delivery of
high quality upholstered furniture at competitive prices. A lifetime limited
warranty applicable to all the Company's products covering frames, springs,
mechanisms and selected cushions reflects its commitment to high quality. In
recent years, the Company took a number of steps to reduce costs and improve
quality while generally maintaining constant price levels. These steps
included: (i) implementing an innovative employee involvement and compensation
program, (ii) using more efficient manufacturing techniques, (iii) accelerating
deliveries, and (iv) expanding the Company's computerized management information
system.
In addition, the Company has enhanced its marketing efforts to existing
retailers, while identifying and adding new retailers in existing markets and in
regions where its products are not widely distributed. When adding retailers,
the Company targets financially sound retailers committed to progressive
marketing techniques. The Company also has implemented plans to increase
foreign sales and to add new Rowe ShowPlace locations.
STRATEGY
Management believes in the importance of maintaining strong relationships with
customers and responding effectively to their demands. The Company's objective
is to provide enhanced service and value to its customers through quick delivery
of high quality upholstered furniture at competitive prices. The key elements
of the Company's strategy to achieve this objective include:
Product Quality and Value. The Company is committed to providing high quality,
value oriented furniture at competitive prices. Management believes the Company
adheres to strict quality standards in all aspects of design and production,
including material selection, frame design and construction, workmanship, and
appearance. Product quality improvements in recent years include better
undercarriage construction, the use of higher quality cushioning materials and
improved fabric matching. A lifetime limited warranty applicable to all the
Company's products covering the frames, springs, mechanisms and selected
cushions reflects the Company's commitment to high quality. The Company has
been successful in providing this quality while generally holding prices
constant in recent years.
Employee Involvement and Compensation. A critical component of the Company's
strategy has been the implementation of what management believes to be an
innovative employee involvement program. The furniture industry has
traditionally
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compensated manufacturing employees on a piecework basis. Management believes
that piecework compensation, which rewards employees based upon the number of
units produced by the individual employee or production line, emphasizes
quantity. A focus on quantity is often at the expense of quality, and does not
provide incentive for employees to produce high quality products and to generate
ideas that will contribute to facility-wide efficiency improvements. In
contrast, the Company encourages all employees to participate in decision-
making, and compensates employees based on hourly rates plus monthly bonuses for
productivity improvements and cost reductions on a facility-wide basis. This
approach provides incentives for employees to contribute to facility-wide
efficiency, quality improvements and cost reductions, and has also reduced
supervisory expense. Management believes that the employee involvement and
compensation program has contributed significantly to improvements in operating
efficiencies, labor productivity, employee morale, product quality and customer
service.
Dedication to Customer Service. The Company is dedicated to providing a high
level of service to all its customers. The Company maintains close contact and
communicates frequently with its customers in order to better identify,
understand and meet their needs. Management believes the utilization of
Company-employed sales persons enables it to better communicate with its
customers.
Important aspects of the Company's service to certain customers include its
automated order entry, bar coding and electronic data interchange systems.
These systems give customers the ability to place orders directly, and allows
the Company to monitor the status of orders and track inventory and sales
activity. The Company is in the process of enhancing the capabilities of these
systems and increasing the number of customers who utilize them. In addition,
the Company has introduced point-of-sale computer systems into Rowe ShowPlace
and other dealer locations that allow retailers to display for consumers full-
color pictures of various combinations of furniture styles and fabric patterns
and to enter consumers' orders directly with the Company. The Company has
established regional repair service centers so that it can respond quickly to
consumers' needs.
Another special emphasis of the Company's customer service is the prompt
delivery of its products, a significant portion of which are manufactured and
shipped within 30 days of receipt of an order. The Company's order entry,
credit approval, manufacturing and shipping systems are all designed to provide
prompt delivery to its customers.
Manufacturing Efficiencies. Management has taken a number of steps to improve
the Company's manufacturing efficiencies, including implementation of
computerized systems in its manufacturing facilities to manage more effectively
its inventories, purchasing, labor and manufacturing processes; the development
of its employee involvement program; and the establishment of new internal
systems to control overhead and material usage. In addition, the Company has
added modern equipment, such as computerized routers utilized in its milling
operations and new computerized cover cutting machines that enhance
efficiencies. Management believes through a
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combination of increased efficiencies, improved product quality, accelerated
deliveries and stable pricing, the Company will maintain a competitive advantage
in marketing its products.
Expanding Retail Distribution. Despite the recent consolidation in the retail
furniture industry, management believes there are ample opportunities to expand
the Company's retail distribution network. The Company strives to maintain
strong relationships with, and increase sales to, its existing retailers. It
also attempts to increase sales by adding new retailers, particularly in
geographic regions where its products currently are not widely distributed, such
as the Southwest and the West. When adding retailers, the Company targets what
it believes to be financially sound retailers committed to progressive marketing
approaches and the desire to carry a significant portion of the Company's
product line. The Company also intends to increase the number of Rowe ShowPlace
locations in selected markets. In addition, the Company has implemented plans
to increase foreign sales, and has become affiliated with nonexclusive
commissioned sales representatives in Canada, Mexico, Scandinavia, the
Caribbean, the Middle East, the Far East, Australia and other regions.
THE INDUSTRY
As reported by the American Furniture Manufacturers Association in December,
1997 the following table sets forth estimated factory shipments for the domestic
furniture industry in general, and the upholstered furniture segment in
particular, during each of the four years ended December 31, 1997.
Year Ended December 31,
----------------------------
1994 1995 1996 1997
---- ---- ---- ----
(in billions)
Industry shipments $18.6 $19.0 $20.0 $21.1
Upholstered furniture shipments 7.1 7.4 7.9 8.4
The principal categories of furniture products include wood, upholstered and
metal furniture products. Of these categories, wood is the largest,
representing approximately half of total industry sales, while upholstered
furniture represents approximately 40% and metal and other products account for
the balance. Within each category, furniture manufacturers generally focus on
particular price ranges and styles.
The furniture industry historically has been cyclical, fluctuating with the
general economy. Management believes that the industry is significantly
influenced by consumer behavior and confidence, personal disposable income,
demographics, housing activity, interest rates, and credit availability. The
upholstered segment of the furniture industry generally has followed the same
trends as the rest of the furniture industry. There can be no assurance that an
economic downturn would not have a material adverse effect on the Company.
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PRODUCT LINES
The Company's products encompass a full line of upholstered furniture including
sofas, sleeper sofas, loveseats, and chairs. The Company's products are
available in approximately 600 different fabrics. Styles offered include
traditional, contemporary, and country. The Company also markets under the Rowe
name a limited line of leather furniture purchased from another manufacturer.
In addition, the Company-owned Rowe ShowPlace locations offer complementary
accessory items such as lamps, rugs, and tables from other manufacturers.
The Company's product strategy is to provide a wide choice of furniture styles
and fabrics while providing high quality at competitive prices. The Company
continually reviews and evaluates its designs, and annually adds and
discontinues designs as it deems appropriate. The Company identifies trends in
styles, colors, and patterns through independent research, contacts with the
Company's customers and the occasional use of independent designers. Management
also solicits opinions from its customers, and manufacturing and marketing
employees prior to final design selection.
MARKETING AND SALES
The Company has developed a broad and diverse national customer base. The
Company sells its products through commissioned sales personnel who are
employees of the Company dedicated to marketing the Company's products
exclusively. Management believes that this gives the Company a competitive
advantage over many of its competitors which sell their products through
independent sales representatives who represent more than one manufacturer. The
Company's products are sold to over 1,000 national, regional, and local
furniture retailers, including Levitz, Leath, Jordan's Furniture, Star Furniture
and Sears Homelife. During 1997, Levitz accounted for approximately 16% of the
Company's 1997 shipments, and its ten largest customers (including Levitz)
accounted for approximately 34% of 1997 shipments. Other than Levitz, no
customer accounted for more than 3% of the 1997 shipments. While the loss of
Levitz or other large customers could have a material adverse effect on its
business, management believes that dependence on any one customer will diminish
as the Company diversifies its customer base and the markets served.
While the Company sells its products throughout the United States, management
believes that there are opportunities for greater penetration in the regions
where the Company's products are not currently widely distributed. The Company
has targeted key retailers in these markets as opportunities for further growth.
The general marketing practice in the furniture industry is to exhibit products
at international and regional furniture markets. The Company displays its
product lines and introduces new products in April and October of each year at
an eight day furniture market held in High Point, North Carolina. The Company
maintains a 28,000 square
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foot showroom at the High Point market. In addition, the Company has developed
plans to increase sales in foreign markets. Approximately 5% of 1997 sales were
to customers located outside of the United States.
ROWE SHOWPLACE PROGRAM
A Rowe ShowPlace is either a dedicated gallery area within an independent retail
furniture store or a freestanding retail furniture store where the Company's
products are displayed on an exclusive basis together with other manufacturers'
complementary furniture accessories. The Company has implemented the Rowe
ShowPlace program featuring the Company's furniture in order to increase its
market penetration and name recognition among customers. There are currently
approximately over 100 Rowe ShowPlace locations in operation. Most are dedicated
galleries located within stores operated by retailers that also sell other
manufacturers' products, six are freestanding independently owned retail
locations, and ten are freestanding Company-owned retail locations. In-store
locations are situated on a separate, generally prominent part of the sales
floor dedicated to displaying the Company's products and marketing materials.
The Rowe ShowPlace program accounted for more than 15% of the Company's fiscal
1997 shipments.
A Rowe ShowPlace offers the retail customer a choice of a wide variety of
contemporary and traditional upholstered furniture styles, as well as
approximately 600 different fabrics. By choosing various combinations of style
and fabric, the consumer is able to customize his or her selection.
Most Rowe ShowPlace locations, including all freestanding locations, have a
point-of-sale computer system that displays any fabric on any style, allowing
the consumer to combine fabrics and styles and have an immediate picture of the
finished product before making a selection.
The Company's emphasis will continue to be on opening additional Rowe Furniture
Galleries in select retail furniture stores and freestanding Company-owned Rowe
ShowPlace stores where additional locations are planned for 1998. The expansion
of Company-owned ShowPlace stores is supported by the addition of personnel with
furniture retailing experience. The Company is expanding the program of national
advertising intended to increase recognition of the Rowe name and to complement
the development of the Rowe ShowPlace program. The freestanding Rowe ShowPlace
locations are subject to all of the risks generally associated with operating a
retail establishment, including suitable site selection, competition for retail
customers, and the need for qualified management and sales personnel. In
addition, because the Rowe ShowPlace program accounted for more than 15% of
fiscal 1997 shipments, a material reduction in sales at such stores may have an
adverse effect on the Company's results.
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MANUFACTURING AND DISTRIBUTION
The Company's upholstery and frame manufacturing operations are conducted in
four owned facilities, two located in Virginia and two located in Missouri,
comprising an aggregate of approximately one million square feet. In addition
to manufacturing its own lines of furniture, the Company manufacturers furniture
frames and kiln dries hardwood and pine lumber for outside customers.
Manufacturing for The Wexford Collection line of wood furniture is conducted in
a 103,000 sq. ft. facility under a long-term lease in Carson, California.
Manufacturing Process. The Company utilizes a vertically integrated
manufacturing process which includes kiln-drying of hardwood, wood milling,
frame construction, fabric cutting and sewing, foam cutting and filling,
upholstery and final assembly of the upholstered product. The Company
manufactures and assembles all of the frames used in its upholstered furniture.
The Company utilizes computer-aided design patterns for manufacturing frames and
upholstered furniture and utilizes specialized machines in the fabric cutting
process which facilitate design work, help maximize fabric yield, and increase
the efficiency of the assembly process. The completed pieces of upholstered
furniture are then cleaned, inspected and packed for shipping.
Employee Involvement and Compensation. A key aspect of the Company's
manufacturing process is its employee involvement and compensation program.
This program involves all of the Company's workers in the improvement of the
manufacturing process by providing incentives to increase productivity, to
reduce costs, and to improve quality. The Company encourages all employees to
participate in decision-making, and compensates employees based on hourly rates
plus bonuses for productivity improvements and cost reductions on a facility-
wide basis. Management believes that this program provides incentive for
employees to contribute to facility-wide efficiency, quality improvements and
cost reductions. Since implementation of the program, the Company has
experienced a significant increase in employee suggestions leading to such
improvements and reductions. On a facility-wide basis, 1997 incentive bonuses
ranged up to approximately 15% of hourly compensation. Salaried employees also
participate in this program, however, their bonuses cannot exceed the highest
amount paid to an hourly employee.
Computer Systems. The Company makes extensive use of a computerized management
information system (MIS) in the manufacturing process. The MIS, which includes
software developed by the Company, helps the Company manage order entry,
purchasing, labor, inventories, receivables, and product shipping. Management
believes that its MIS is advanced by furniture industry standards; however, the
Company intends to continue to upgrade the system by developing and/or
purchasing new software to handle new applications and additional demands of
anticipated future growth. New software that is currently being installed in
connection with a more fully integrated system will address a portion of the
Company's year 2000 issues.
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Other year 2000 issues are being assessed by an internal task-force to determine
the score of changes needed to software and equipment.
Manufacturing Capacity. While the Company primarily operates its manufacturing
facilities on a one-shift, five or six day per week basis, partial second shifts
are in operation at all its facilities. Management believes that the Company
could increase production without substantial capital expenditures by expanding
the number of personnel on both first and second shifts.
Backlog. The Company generally manufactures its products in response to actual
customer orders and typically ships the finished product within 30 days
following receipt of the related order, depending upon fabric availability.
Accordingly, the level of backlog at any particular time is limited, and is not
necessarily indicative of the level of future shipments. The Company's backlog
of unshipped orders was approximately $14.4 million as of November 30, 1997 as
compared to $10.4 million as of December 1, 1996, higher primarily from
increased orders in the last half of 1997. The Company anticipates that 100% of
the backlog as of November 30, 1997 will be shipped in 1998.
Distribution. The Company has contracted with a truck leasing company to
provide dedicated carriage services of its products. Under the agreement, the
Company's products are delivered in accordance with the Company's specifications
on a modern fleet of over-the-road tractors and trailers that prominently
display the Company's name. Management believes that the arrangement offers the
Company favorable terms, allows it to meet its delivery deadlines, and improves
the Company's name recognition. For West Coast shipments, the Company has what
management believes to be a favorable arrangement for carriage of the Company's
products with third party motor carriers. For international shipments,
upholstered furniture is shipped primarily in full containers utilizing third-
party freight forwarders. Approximately 90% of the Company's fiscal year 1997
upholstered shipments were delivered under these arrangements.
RAW MATERIALS
The raw materials used by the Company include fabrics, hardwood lumber, plywood,
polyurethane foam, metal components, mattresses and finishing materials. Other
than lumber and fabric, all raw materials used by the Company are generally
available on an "as needed" basis. The Company maintains what it believes to be
an adequate supply of raw materials in inventory.
The Company currently obtains its raw materials from a limited number of
suppliers, and in the case of hardwood plywood, a single supplier. However,
management does not believe the Company is dependent upon a single supplier for
any of its materials, as substitute suppliers are available. Management believes
that its sources of raw materials are adequate and that it forms strong
relationships with its suppliers and negotiates favorable prices for its raw
materials.
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To improve quality, maximize the opportunities to implement labor saving
technology, hedge against the potential of rising wood costs and free up kiln
capacity, the Company has increased the substitution of hardwood plywood for
hardwood in certain aspects of the construction of its furniture frames.
Because plywood construction is less labor-intensive, and in many respects more
structurally sound than hardwood construction, this method has improved product
quality while helping to reduce overall cost.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS
The Company's operations are required to meet federal, state and local
regulatory standards in the areas of safety, health, and environmental pollution
controls. Historically, compliance with these standards has not had a material
adverse effect on the Company's operations. Management believes that the
Company's plants are in compliance in all material respects with applicable
federal, state and local laws and regulations concerned with safety, health, and
environmental protection.
The Company currently anticipates increased federal and state environmental and
health and safety regulation affecting the furniture industry, particularly
regarding emissions from paint and finishing operations and wood dust levels in
the manufacturing process. Any such additional regulations could affect the
Company's wood milling and finishing operations. The industry and its suppliers
are attempting to develop water-based finishing materials to replace commonly
used organic-based finishes which are a major source of regulated emissions.
The Company cannot at this time estimate the impact of any new regulations on
the Company's operations or the costs of compliance.
COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers. The market in which the Company competes includes a large number
of manufacturers of upholstered furniture. Certain of the Company's competitors
have greater financial resources than the Company. Management believes that the
high quality, design, and competitive pricing of the Company's products, the
Company's reputation among retailers, and the Company's commitment to customer
service have enabled the Company to compete successfully in this market.
EMPLOYEES
As of November 30, 1997, the Company employed approximately 1,650 full-time
employees, of which 194 are in management, supervisory, and sales positions.
Approximately 100 employees employed at a single plant, 8 of whom are members of
a labor union, are covered by a collective bargaining agreement. No other
employees are covered by such an arrangement, and the Company considers its
employee relations to be good.
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TRADEMARKS
The Company has registered its "Rowe", "A Whole New Way to Buy Furniture", "The
Rowe ShowPlace", "The ShowPlace Coordinated Home Furnishings by Rowe", "Rowe
First in Fashion", "Regency Manor", "The Rowe ShowMe Machine", "Limited
Editions" and "The ShowPlace" trademarks with the United States Patent and
Trademark Office. Applications for registration of the Company's "Cover Ups",
"Comfortable Stuff" and "Comfortable Stuff by Rowe" trademarks are pending
before the United States Patent and Trademark Office. In connection with the
Company's acquisition of J & M Designs, Ltd., the Company also owns the "The
Wexford Collection" and "The Wexford Group" trademarks, which are registered
with the United States Patent and Trademark Office and the California Secretary
of State. In addition, the Company has certain of its trademarks registered in
Australia, Canada and Mexico, and applications for registration of certain of
the Company's trademarks are pending in Australia, Canada, Germany and the
European Community. Management believes that its trademark position is
adequately protected in all markets in which the Company does business.
Management also believes that the Company's trade names are recognized by
dealers and distributors and are associated with a high level of quality and
value.
INSURANCE
The Company maintains what management believes is a complete liability and
property insurance program. Additionally, the Company maintains a self-
insurance program for that portion of health care costs not covered by
insurance.
ITEM 2. PROPERTIES.
The following table sets forth certain information concerning the Company's
manufacturing facilities:
Approximate
Size in
Location Description Square Feet
- -------- ----------- -----------
Salem, Virginia Administrative Office
and Manufacturing 335,000
Salem, Virginia Manufacturing 241,000
Poplar Bluff, Missouri Manufacturing 300,000
Morehouse, Missouri Manufacturing 136,000
Carson, California Administrative Office
and Manufacturing 103,000
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In addition, the Company maintains executive offices in leased offices in
McLean, Virginia. The Company considers its equipment and its manufacturing and
office facilities to be adequate and well-maintained.
In addition to its manufacturing and office facilities, the Company owns the
following properties that are held for investment and are leased on a net basis:
Approximate
Lease Size in
Location Expires Description Square Feet
- -------- ------- ----------- -----------
Christiansburg, Virginia Various thru Industrial 79,000*
02-28-02
Jessup, Maryland Various thru Office/
12-31-04 Industrial 180,000
Sylmar, California 03-31-04 Industrial 115,000
- ----------
* 12,000 square feet is currently leased.
The investment properties located in Christiansburg, Virginia and Sylmar,
California were originally acquired by the Company between 1972 and 1988 for
utilization as Company manufacturing facilities. In past years, the Company
ceased utilizing these facilities for its own operations and determined that the
best return on these properties could be realized by leasing them to third
parties. In February, 1995, the Company completed the sale of a 175,000 square
foot warehouse in Sylmar, California. The warehouse had been held by the
Company as investment property. The after-tax gain was approximately $3.0
million, net of lost rents during the disposition period. In June of 1995, the
Company purchased other rental income-producing property in Jessup, Maryland to
permit a "tax-deferred" exchange with the proceeds realized from this
transaction. A retail property located in Leesburg, Florida which was acquired
in 1984 was sold during fiscal year 1997. Aggregate rental income from
investment properties, net of commissions, was $1,005,000, $1,442,000 and
$1,399,000 in 1995, 1996 and 1997, respectively.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings, other than routine litigation incidental
to the business of the Company. While the outcome of these routine legal
proceedings cannot be predicted with certainty, it is the opinion of management
that the resolution of these legal proceedings should not have a material
adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies, or otherwise, during the quarter ended November 30, 1997.
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Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The information contained under the caption "Stock Price and Dividend
Data" in the Annual Report to Stockholders for the fiscal year ended November
30, 1997 is included in Exhibit 13 hereto and incorporated herein by reference.
(b) Approximate Number of Equity Security Holders.
Approximate Number of Record
Title of Class Holders as of November 30, 1997
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Common Stock, par value 1,100
$1.00 per share
ITEM 6. SELECTED FINANCIAL DATA.
The information contained under the caption "Five-year Summary" in the Annual
Report to Stockholders for the fiscal year ended November 30, 1997 is included
in Exhibit 13 hereto and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The management's discussion and analysis of financial condition and results of
operations section of the Annual Report to Stockholders for the fiscal year
ended November 30, 1997 is included in Exhibit 13 hereto and incorporated herein
by reference.
FORWARD LOOKING INFORMATION
Certain portions of this report, and particularly the Notes to the Consolidated
Financial Statements and the Management's Discussion and Analysis of Financial
Condition and Results of Operations in Part II of this report and the portions
of Item II in Part I contain forward-looking statements. These statements can
be identified by the use of future tense or dates or terms such as "believe,"
"expect," "anticipate" or "plan." Important factors could cause actual results
to differ materially from those anticipated by some of the statements made in
this report. Some of the factors include, among other things, changes from
anticipated levels of sales, whether due to future national or regional economic
and competitive conditions, customer acceptance of existing and new products, or
otherwise; pending or future litigation; pricing pressures due to excess
capacity; raw material cost increases; transportation cost increases; the
inability of a major customer to meet its obligations; loss of significant
customers in connection with
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a merger or acquisition, bankruptcy or otherwise; actions of current or new
competitors; increased advertising costs associated with promotional efforts;
change of tax rates; change of interest rates; future business decisions and
other uncertainties, all of which are difficult to predict and many of which are
beyond the control of the Company.
ITEM 7A. QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following information in the Annual Report to Stockholders of the fiscal
year ended November 30, 1997 is included in Exhibit 13 hereto and incorporated
herein by reference:
Consolidated Balance Sheets -- November 30, 1997 and December 1, 1996
Consolidated Statements of Income --
Years Ended November 30, 1997, December 1, 1996, and December 3, 1995
Consolidated Statements of Stockholders' Equity --
Years Ended November 30, 1997, December 1, 1996, and December 3, 1995
Consolidated Statements of Cash Flows --
Years Ended November 30, 1997, December 1, 1996, and December 3, 1995
Notes to Consolidated Financial Statements (includes selected quarterly
financial data)
Report of Independent Certified Public Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
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Part III
Notwithstanding anything below to the contrary, the Report of the Compensation
and Stock Option Committees and the Performance Graph contained on pages 12
through 14 of the Company's 1998 Annual Meeting Proxy Statement are not
incorporated by reference in this Form 10-K.
Item 10. Directors and Executive Officers.
The information required by Item 10 is contained in the Company's 1998 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the Company's 1998 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the Company's 1998 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the Company's 1998 Annual
Meeting Proxy Statement and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the Company's fiscal year end.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The consolidated balance sheets as of November 30, 1997 and
December 1, 1996 and the related consolidated statements of
income, stockholders' equity, cash flows and notes to
consolidated financial statements for each of the three years
in the period ended November 30, 1997 together with the report
of BDO Seidman, LLP dated December 22, 1997, except for Note
12, which is as of January 2, 1998, appearing in the 1997
Annual Report to Stockholders are incorporated herein by
reference. The following additional financial data should be
read in conjunction with the consolidated financial statements
in such 1997 Annual Report to Stockholders.
2. Financial Statement Schedule:
Report of Independent Certified Public Accountants on Financial
Statement Schedule
II Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
consolidated financial statements and notes thereto.
3. Exhibits:
Exhibit
Number Exhibit
- ------ -------
3.1 Articles of Incorporation of the Company (incorporated by
reference to the Company's Registration Statement on Form S-1
No. 33-74504 filed with the Securities and Exchange Commission
on January 27, 1994)
3.2 By-laws of the Company (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504
filed with the Securities and Exchange Commission on January
27, 1994)
4 Specimen Stock Certificate (incorporated by reference to the
Company's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on January 5, 1994)
<PAGE>
10.1 Rowe Furniture Corporation 1983 Stock Option and Incentive
Plan (incorporated by reference to the Company's Registration
Statement on Form S-1 No. 33-74504 filed with the Securities
and Exchange Commission on January 27, 1994)
10.2 Rowe Furniture Corporation 1993 Stock Option and Incentive
Plan (incorporated by reference to the Company's registration
Statement on Form S-8 No. 2-94943 filed with the Securities
and Exchange Commission on October 18, 1993)
10.3 Rowe Furniture Corporation Merged 401(k) and Employee Stock
Ownership Plan dated December 1, 1991 (incorporated by
reference to the Company's Registration Statement on Form S-1
No. 33-74504 filed with the Securities and Exchange Commission
on January 27, 1994)
10.4 Rowe Furniture Corporation Amended and Restated Supplemental
Executive Retirement Plan II (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504
filed with the Securities and Exchange Commission on January
27, 1994)
10.5 Employment Agreement dated December 6, 1984 between the
Company and Mr. Harvey I. Ptashek (incorporated by reference
to the Company's Registration Statement on Form S-1 No. 33-
74504 filed with the Securities and Exchange Commission on
January 27, 1994)
10.6 Employment Agreement dated December 5, 1985 between the
Company and Mr. Arthur H. Dunkin (incorporated by reference to
the Company's Registration Statement on Form S-1 No. 33-74504
filed with the Securities and Exchange Commission on January
27, 1994)
10.7 Employment Agreement dated December 1, 1993 between the
Company and Mr. Gerald M. Birnbach (incorporated by reference
to the Company's Registration Statement on Form S-1 No. 33-
74504 filed with the Securities and Exchange Commission on
January 27, 1994)
10.8 Rowe Furniture Corporation Cash-or-Deferred Non-Qualified
Executive Retirement Plan (incorporated by reference to the
Company's Form 10-K filed with the Securities and Exchange
Commission on February 27, 1995)
10.9 Employment Agreement dated February 2, 1998 between the
Company and Mr. Gerald M. Birnbach
13 Portions of the Annual Report for the year ended November 30,
1997
21 List of Subsidiaries
<PAGE>
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule
(b) Reports on Form 8-K.
One report on Form 8-K was filed in the fourth quarter of the Company's
fiscal year. On November 26, 1997, a Form 8-K was filed reporting that on
November 5, 1997, Rowe Furniture Corporation announced the completion of the
750,000 share buy-back program which was approved by the Board of Directors on
November 6, 1996 (500,000 shares) and June 3, 1997 (250,000 shares) and
announced that the Board of Directors approved the purchase of 1,000,000 shares
of its common stock in open market transactions
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROWE FURNITURE CORPORATION
By: /s/ ARTHUR H. DUNKIN
---------------------------------
February 12, 1998 A. H. Dunkin, Secretary-Treasurer
Pursuant to the requirements of the Securities Act of 1933, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board
/s/ GERALD M. BIRNBACH President, Director February 12, 1998
- --------------------------------- (Principal Executive Officer)
G. M. Birnbach
/s/ RICHARD E. CHENEY Director February 12, 1998
- ---------------------------------
R. E. Cheney
Secretary-Treasurer, Director
/s/ ARTHUR H. DUNKIN (Principal Financial and February 12, 1998
- --------------------------------- Accounting Officer)
A. H. Dunkin
Senior Vice President and
/s/ HARVEY I. PTASHEK Director February 12, 1998
- ---------------------------------
H. I. Ptashek
</TABLE>
<PAGE>
<TABLE>
<S> <CAPTION> <C>
/s/ CHARLES T. ROSEN Director February 12, 1998
- ---------------------------------
C. T. Rosen
/s/ KEITH J. ROWE Director February 12, 1998
- ---------------------------------
K. J. Rowe
/s/ SIDNEY J. SILVER Director February 12, 1998
- ---------------------------------
S. J. Silver
/s/ ALLAN TOFIAS Director February 12, 1998
- ---------------------------------
Allan Tofias
/s/ GERALD O. WOODLIEF Director February 12, 1998
- ---------------------------------
G. O. Woodlief
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Rowe Furniture Corporation
Salem, Virginia
The audits referred to in our report dated December 22, 1997, except for Note
12, which is as of January 2, 1998, relating to the consolidated financial
statements of Rowe Furniture Corporation, which is contained in Item 8 of this
Form 10-K (incorporated in Item 8 of the Form 10-K by reference to the annual
report of stockholders for the year ended November 30, 1997) included the audit
of the financial statement schedule listed in the accompanying index. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
High Point, North Carolina /s/ BDO SEIDMAN, LLP
December 22, 1997 --------------------
BDO SEIDMAN, LLP
<PAGE>
ROWE FURNITURE CORPORATION
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1997, DECEMBER 1, 1996, AND DECEMBER 3, 1995
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
(1) (2)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS - END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts - 1997 $ 300 $ 3,918 $ - $ 3,902(A) $ 316
Allowance for doubtful
accounts - 1996 $ 300 $ 490 $ - $ 490(B) $ 300
Allowance for doubtful
accounts - 1995 $ 300 $ 179 $ - $ 179(C) $ 300
</TABLE>
(A) Accounts charged off less bad debt recoveries of $274,000
(B) Accounts charged off less bad debt recoveries of $69,000
(C) Accounts charged off less bad debt recoveries of $55,000
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT DATED FEBRUARY 2, 1998
BETWEEN THE COMPANY AND
GERALD M. BIRNBACH
<PAGE>
EXHIBIT (10.9)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") entered into this 2nd day of
February, 1998, but effective as of December 1, 1997, between ROWE FURNITURE
CORPORATION, a Nevada corporation and its successor and assigns (hereinafter
referred to as "Employer"), and GERALD M. BIRNBACH (hereinafter referred to as
"Birnbach").
WITNESSETH:
-----------
WHEREAS, Birnbach has served as an employee of Employer for forty-one (41)
years:
WHEREAS, Birnbach and Employer entered into a written agreement, effective
as of December 1, 1993 as amended by a First Amendment dated August 28, 1995
(the "Prior Agreement");
WHEREAS, in recognition of Birnbach's value to Employer and his past
services to Employer, and as an inducement to secure his future services and to
assure continuity of management, Employer wishes to continue to employ Birnbach
as its Chairman of the Board, President, and Chief Executive Officer until his
retirement and to provide Birnbach with certain benefits in connection with such
employment;
WHEREAS, Birnbach wishes to continue in the employ of Employer until his
retirement: and
WHEREAS, the parties, by this writing, have agreed to amend the Prior
Agreement, in full, in accordance with the terms and provisions contained
herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties hereby agree as follows:
1. Employment Conditions.
----------------------
(a) Employer hereby agrees to continue to employ Birnbach as its
Chairman of the Board, President and Chief Executive Officer, and Birnbach
hereby accepts such employment, upon the terms and conditions hereinafter
set forth.
(b) During the term of his employment, Birnbach shall devote his
best efforts and entire working time and attention to his employment and
shall perform such duties consistent with his positions as Chairman of the
Board, President
<PAGE>
and Chief Executive Officer of Employer as are from time to time
assigned or delegated to him by Employer's Board of Directors and as
are set forth in Employer's By-Laws. Except for the normal travel
requirements of his position, Birnbach shall not be required to
perform his duties outside a twenty mile radius of Bethesda, Maryland.
Employer shall provide adequate and appropriate working facilities for
Birnbach, including any necessary secretarial and office personnel.
2. Term. The initial term of this Agreement shall be a period of
----
Five years commencing on December 1, 1997. On each anniversary of this
Agreement, the term shall automatically be extended for an additional year
unless at least 90 days prior to such anniversary the Board of Directors of
Employer, by the affirmative vote of at least two-thirds of its membership,
elects not to extend the term and written notice of such action is delivered to
Birnbach. The initial term plus any extension period is sometimes hereinafter
referred to as the "Term". Birnbach's employment is subject to termination as
provided in Paragraph 10 hereof.
3. Compensation. For all services to be rendered by Birnbach
------------
pursuant to this Agreement (other than as a Director), Birnbach shall receive
from Employer the following:
(a) during the Term, a base salary (exclusive of any bonus
payments, fringe benefits, or expense allowances or reimbursements) at
the annual rate of $791,850.00 (the "Base Salary"), at such payment
intervals as are the usual custom of Employer, but in not less than
equal monthly installments;
(b) during the Term, a cumulative annual increase in addition
to the Base Salary, to be paid in the same manner as the Base Salary,
which annual increase for any year during the Term shall be determined,
as of the anniversary date of this Agreement, in the manner set forth
in Paragraph 4 hereof; and
(c) such bonus, if any, as Birnbach may be awarded from time
to time by Employer's Board of Directors in recognition of any unusual
efforts made by Birnbach on behalf of Employer, the payment and amount
of any such bonus being in the sole discretion of Employer's Board of
Directors.
4. Cost of Living Expenses.
-----------------------
<PAGE>
(a) As promptly as practicable after November 30th of each year
during the Term, Employer shall compute the increase, if any, in the
cost of living, using as the basis of such computation the "Consumer
Price Index." Urban Wage Earners and Clerical Workers. Washington,
D.C.-Maryland-Virginia. All Items (1967 = 100) or any successor index
published by the Bureau of Labor Statistics of the United States
Department of Labor (hereinafter referred to as the "Index").
(b) The Index number entitled "All Items" for the month of
December 1997 shall be the "Base Index Number" and the corresponding
Index number for the month of December on each anniversary of this
Agreement thereafter shall be the "Current Index Number." The
percentage increase in the cost of living on each such anniversary of
this Agreement shall be determined by dividing the Current Index Number
(CIN) by the Base Index Number (BIN), and subtracting the integer I
from the quotient, all in accordance with the following formula:
Percentage of increase in cost of living .= (CIN) - I.(BIN)
---
The percentage of increase in the cost of living multiplied by the Base
Salary for the previous year, as adjusted pursuant to Subparagraph 3(b)
hereof, shall be additional compensation payable to Birnbach for the
employment year commencing on December 1st in the particular year for
which the then Current Index Number is used in determining the
percentage increase in the cost of living.
(c) Appropriate adjustments shall be made promptly in the
event there is a published amendment of the Index figures upon which
the computation set forth in this Paragraph 4 is based.
(d) If the publication of the above-designated Index is
discontinued, the parties agree to accept comparable statistics on the
cost of living for the same geographic region, as computed and
published by an agency of the United States or by a responsible
financial periodical of recognized authority.
5. Deferral of Compensation Not Deductible by Employer. In the
---------------------------------------------------
event that Birnbach's aggregate compensation (including compensatory benefits
which are deemed remuneration for purposes of (S)162(m) of the Internal Revenue
Code of 1986, as amended) from Employer and its subsidiaries for any calendar
year exceeds the
<PAGE>
greater of: (a) One Million Dollars ($1,000,000); or (b) the maximum amount of
compensation deductible by Employer in any calendar year under (S)162(m) of the
Internal Revenue Code of 1986, as amended (the "maximum allowable amount"), then
any such amount in excess of the maximum allowable amount shall be mandatorily
deferred with interest thereon at 8% per annum to a calendar year such that the
amount to be paid to Birnbach in such calendar year, including deferred amounts
and interest thereon, does not exceed the maximum allowable amount. Subject to
the foregoing, deferred amounts including interest thereon shall be payable at
the earliest time permissible. Notwithstanding the foregoing, upon any
termination of Birnbach's employment for any reason whatsoever all deferred
amounts plus accrued interest thereon shall be paid to Birnbach (or his estate,
if he is not then living) not later than the January 3rd next following the date
of termination. If the date of such payment would take place more than sixty
days after the date of termination, then within five days after receipt by
Employer of a written election from Birnbach or his estate, Employer shall
transfer to the Trust established pursuant to the Trust Agreement for the Rowe
Furniture Corporation Employment Agreement and SERP Waiver with Gerald M.
Birnbach dated September 29, 1995 (the "Trust Agreement") cash in amount equal
to the then accumulated deferred amounts plus accrued interest thereon and the
Trustee of the Trust will invest the funds received as directed by Employer with
Employer being responsible for the earnings shortfall (below 8% per annum) and
realizing the benefit of excess earnings (above 8% per annum) from and after the
date of receipt of such funds by the Trustee of the Trust through the day next
preceding the January 3rd distribution date. Any earnings shortfall shall be
paid by Employer to the Trust on the day next preceding the January 3rd
distribution date. Any excess earnings shall be returned by the Trust to
Employer on the January 3rd distribution date. On each date that funds are
tendered by Employer to the Trust pursuant to the provisions of this Paragraph
5, Employer shall deliver to the Trustee of the Trust a Payment Schedule (as
defined in the Trust Agreement) consistent with the provisions hereof. Employer
agrees to cause the Trust Agreement to be amended at the earliest practicable
time to provide for substitution of this Agreement for the Prior Agreement and
for such other changes that are necessary or appropriate to implement the terms
and provisions of this Agreement as they apply to the Trust Agreement and the
Trust established thereby.
<PAGE>
6. Vacation and Other Benefits. Birnbach shall be entitled to a
----------------------------
reasonable paid vacation each year of his employment with Employer, as well as
to any other employment benefits given to Employer's officers or other
executives. The benefits to which Birnbach shall be entitled shall include, but
not be limited to, the following:
(a) Beginning December 1, 1997, and at the beginning of every second year
of the Term thereafter, Employer shall provide Birnbach a new luxury automobile,
comparable to the automobile last furnished to Birnbach by Employer, for use in
the performance by Birnbach of his responsibilities for Employer and his
promotion of Employer's business. Employer shall pay for, or reimburse Birnbach
for, the gasoline, maintenance, insurance, and any other expenses incurred in
the business use of any automobile furnished by Employer to Birnbach.
(b) Employer shall reimburse Birnbach for all reasonable expenses incurred
by Birnbach in the performance of his responsibilities for Employer and his
promotion of Employer's business. Birnbach shall submit to Employer periodic
statements of all expenses so incurred. Subject to such audits as Employer may
deem appropriate, Employer shall promptly reimburse Birnbach for the full amount
of any such expenses advanced by Birnbach in the ordinary course of his duties.
(c) Unless otherwise agreed to by the parties, Birnbach shall be entitled
to participate in "any employee benefit plan" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended) maintained by
Employer.
(d) Upon the termination of Birnbach's employment for any reason
whatsoever other than a Termination for Cause pursuant to Subparagraph 10(b)
hereof, Employer shall provide to Birnbach and his spouse for their respective
lifetimes, at the sole cost of Employer, health insurance and health coverage
reimbursement equivalent to whatever is in effect for the benefit of Birnbach
and his spouse immediately prior to the date of Birnbach's employment
termination or a Change in Control (as hereinafter defined), whichever benefits
would be more beneficial to Birnbach and/or his spouse as determined by Birnbach
(or if he is not then living, by his spouse), including but not limited to,
major medical health plan benefits and supplemental executive medical plan
benefits ("Post-Separation Health Benefits"). The Post-Separation Health
Benefits shall be primary coverage and not secondary to medicare or medicaid
coverage or benefits.
<PAGE>
The Post-Separation Health Benefits are vested rights and Birnbach's spouse
shall be a third beneficiary thereof.
7. Disability Insurance. So long as Birnbach is employed by Employer, he
---------------------
shall be entitled to participate in Employer's group disability insurance
program. Birnbach shall pay the premiums for the coverage provided him under
such program. In the event of Birnbach's total disability, as defined in
Subparagraph 10(a) hereof, such insurance shall provide Birnbach monthly
disability benefits of not less than $20,000.00 until the expiration of the Term
or the termination of Birnbach's employment in connection or following a Change
in Control, whichever shall First occur.
8. Termination of Rights under SERP. The parties agree that any and all
---------------------------------
of Birnbach's rights under the Amended and Restated Supplemental Executive
Retirement Plan entered into between Birnbach and Employer on April 2, 1990,
(the "SERP") have been terminated as of November 27, 1993, pursuant to the terms
of a Waiver Agreement dated December 1, 1993.
9. Noncompetition and Confidentiality Agreement.
---------------------------------------------
(a) Provided that Employer is not in material default to Birnbach on
any of its obligations under this Agreement, Birnbach agrees, during the period
of his employment with Employer and for a period of two (2) years after the date
of termination of Birnbach's employment with Employer (but in the event of a
Change in Control only during the period after employment termination that
Birnbach is receiving liquidated damages pursuant to Section 10(f)(ii) below),
not to, directly or indirectly do any of the following:
(i) induce or attempt to influence any employee of Employer to
terminate his employment with Employer;
(ii) engage in (as principal, partner, director, officer, agent,
employee, consultant, or otherwise) or be financially interested in or
associated with any Competing Business, as defined below in this
Subparagraph 9(a); provided, however, that the foregoing restriction shall
not prohibit Birnbach from purchasing or holding stock or other securities
of any corporation, trust, or partnership (regardless of the business of
such entity) that shall have securities listed upon
<PAGE>
any recognized securities exchange or traded on a recognized market in the
United States or Canada: or
(iii) at any time disclose to any one not legally entitled thereto
any information of a confidential nature relative to any facet of the
business of Employer, specifically including but not limited to customer
lists, furniture designs, and wood cutting patterns.
The term "Competing Business" means any business conducted in the continental
United States that is or subsequently becomes engaged in competition with the
principal business activity of Employer. The term "principal business activity"
means the trade in which Employer is substantially engaged (i.e.. to the extent
of more than fifty percent (50%) of its total sales) (a "Suspect Trade"),
reduced to the principal product lines (i.e., those product lines accounting for
more than twenty percent (20% of Employer's total sales) within such Suspect
Trade, as of the date of Birnbach's termination of employment. Total sales shall
include the sales made by Employer and all of its subsidiaries, if any, as of
the November 30th nearest date of Birnbach's termination of employment.
(b) Birnbach specifically acknowledges that Employer's remedy at
law for any breach by Birnbach of the restrictions contained in Subparagraph
9(a) hereof may not be adequate and that Employer shall be entitled to pursue
all remedies as set forth in Subparagraph 9(c) hereof.
(c) Birnbach acknowledges that, in view of the nature of the
business in which Employer is engaged, the restrictions contained in
Subparagraph 9(a) hereof are reasonable and necessary in order to protect the
legitimate interests of Employer and that any violation thereof could result in
irreparable and substantial harm to Employer for which Employer may not have an
adequate remedy at law, and Birnbach therefore acknowledges that, in the event
of his violation of any of these restrictions. Employer shall be entitled to
seek from any court of competent jurisdiction temporary, preliminary, and
permanent injunctive relief, as well as damages and an equitable accounting of
all earnings, profits, and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Employer may be entitled.
<PAGE>
(d) If the period of time or the area specified in Subparagraph 9(a)
hereof, or both, should be adjudged unreasonable in any proceeding, then the
period of time shall be reduced by such number of months or the area shall be
reduced by the elimination of such portion thereof, or both, so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable.
10. Termination, Severance, Liquidated Damages, etc.
------------------------------------------------
(a) The employment of Birnbach under this Agreement may be terminated
at any time prior to a Change in Control by action of Employer's Board of
Directors on thirty days' written notice in the event of Birnbach's "total
disability" (which shall be defined in the manner provided under the group
disability insurance contract maintained by Employer), and Birnbach shall be
paid the relevant portion of his Base Salary, as adjusted pursuant to
Subparagraph 3(b) hereof, for any period subsequent to the date of termination
that precedes the date on which the First payment is due to him pursuant to the
disability insurance referred to in Paragraph 7 hereof. Further, if the amount
of the monthly disability insurance benefits payable to Birnbach pursuant to
Paragraph 7 herein is less than sixty percent (60%) of Birnbach's monthly Base
Salary, as adjusted pursuant to Subparagraph 3(b) hereof, net of Federal income
taxes, in effect for the period immediately preceding his termination due to his
total disability. Employer shall pay to Birnbach an additional monthly amount
such that the payments to be received by Birnbach each month under Paragraph 7
and this Subparagraph 10(a) shall equal one-twelfth (1/12) of sixty percent
(60%) of such Base Salary, as adjusted pursuant to Subparagraph 3(b) hereof, net
of Federal income taxes, for the remainder of the Term. In addition, any
benefits provided to Birnbach under any employee benefit plan referred to in
Subparagraph 6(c) hereof shall immediately vest, and Birnbach and his spouse
shall be entitled to the Post-Separation Health Benefits.
(b) The employment of Birnbach under this Agreement may be terminated
at any time prior to a Change in Control by action of the affirmative vote of at
least two-thirds of Employer's Board of Directors based upon Birnbach's fraud,
dishonesty or other deliberate injury to Employer in the performance of his
duties ("Termination for Cause" or "Terminated for Cause"). Notwithstanding the
foregoing, Birnbach shall not be deemed to have been Terminated for Cause unless
and until there shall have been delivered to him a copy of a resolution, duly
adopted by the
<PAGE>
affirmative vote of not less than two-thirds of the entire membership of
Employer's Board of Directors at a meeting duly called and held for such purpose
(after reasonable notice to Birnbach and an opportunity for Birnbach, together
with his counsel, to be heard before Employer's Board of Directors), stating
that in the good faith opinion of Employer's Board of Directors, Birnbach has
engaged in conduct constituting cause as described in the preceding sentence and
specifying the particulars thereof in detail. In the event of a Termination for
Cause pursuant to this Subparagraph 10(b). Birnbach shall receive his Base
Salary, as adjusted pursuant to Subparagraph 3(b) hereof, and other benefits
under this Agreement through the date of termination.
(c) In the event of the death of Birnbach while employed but not in
connection with or following a Change in Control, his estate shall be entitled
to receive a single lump sum payment, within thirty days following the date of
his death, in an amount equal to his Base Salary as adjusted pursuant to
Subparagraph 3(b) hereof that Birnbach would have been entitled to receive had
he continued to be employed during the lesser of (x) 18 months after the date of
death or (y) the balance of the Term, plus his Base Salary, as adjusted pursuant
to Subparagraph 3(b) hereof, and other benefits under this Agreement through the
date of termination. In addition, any benefits provided to Birnbach under any
employee benefit plan referred to in Subparagraph 6(c) shall immediately vest
and his spouse shall be entitled to the Post Separation Health Benefits.
Notwithstanding the foregoing, in the event that Birnbach shall die while
employed but after Employer's Board of Directors approves a proposed transaction
(subject to shareholder approval) pursuant to which Employer will cease to be an
independent publicly-owned company or for a sale or other disposition of all or
substantially all of the assets of Employer, then his death shall be deemed to
have occurred in connection with a Change in Control if the proposed transaction
is completed within eight months after his death and his estate shall be
entitled to receive the benefits described in Subparagraph 10(f)(i) below at the
time of the consummation of such transaction instead of the benefits described
in this Subparagraph 10(c). If the proposed transaction is not consummated
within said eight month period, then the entitlement of his estate shall be
governed by this Subparagraph 10(c) as opposed to Subparagraph 10(f)(i) below.
<PAGE>
(d) In the event of voluntary termination by Birnbach of this
employment with Employer without Good Reason (as hereinafter defined) prior to a
Change in Control, he shall be paid his Base Salary, as adjusted pursuant to
Subparagraph 3(b) hereof, and other benefits under this Agreement through the
date of termination. He and his spouse shall also be entitled to the Post-
Separation Health Benefits.
(e) In the event of the involuntary termination of Birnbach's
employment (but specifically excluding termination pursuant to Subparagraph
10(a), (b) or (c) hereof) or Birnbach terminates his employment for Good Reason,
in either case not in connection with or following a Change in Control, then
Birnbach, or if he is not then living his estate, shall be entitled to receive
from Employer the full amount of compensation which he would have otherwise been
paid under Subparagraphs 3(a) and 3(b) for remainder of the Term in installments
consistent with prior practice. In addition, any benefits provided to Birnbach
under any employee benefit plan referred to in Subparagraph 6(c) shall
immediately vest, and he and his spouse shall be entitled to the Post-Separation
Health Benefits. The term "Good Reason" means the occurrence, without Birnbach's
express written consent, of a diminution of or interference with his duties,
responsibilities or benefits, including (without limitation) any of the
following circumstances:
(i) a requirement that Birnbach be based at any location not within
twenty miles of Bethesda, Maryland, or that he substantially increase his
travel on Employer business;
(ii) the failure to elect Birnbach as the Chairman of the Board,
President and Chief Executive of Employer, and in the case of a Change in
Control described in Subparagraph 10(g)(iii) hereof, the failure to elect
Birnbach to the same positions at the ultimate parent company of the
Employer.
(iii) a reduction in the number or seniority of personnel reporting
to Birnbach or a material reduction in the frequency with which, or in the
nature of the matters with respect to which such personnel are to report to
Birnbach, other than as part of an Employer-wide reduction in staff:
(iv) a reduction in Birnbach's Base Salary, as adjusted pursuant to
Subparagraph 3(b) hereof, or an adverse change in Birnbach's perquisites,
benefits, contingent benefits or vacation, other than as part of an overall
program
<PAGE>
applied uniformly and with equitable effect to all members of the senior
management of Employer and the senior management of any ultimate parent
company following a Change in Control described in Subparagraph 10(g)(iii)
hereof, or
(v) a material increase in the required hours of work or the
workload of Birnbach; Birnbach's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason herein.
(f) In the event of the termination of Birnbach's employment for any
reason whatsoever in connection with or following a Change in Control he shall
be entitled to the following:
(i) his Base Salary, as adjusted pursuant to Subparagraph 3(b)
hereof and other benefits under this Agreement through the date of
termination; any benefits provided to Birnbach under any employee benefit
plan referred to in Subparagraph 6(c) hereof shall immediately vest; he and
his spouse shall be entitled to the Post-Separation Health Benefits; and on
the date of termination an amount equal to 299% of Birnbach's "base amount"
as determined under 280G of the Internal Revenue Code of 1986, as amended,
payable by Employer in a single cash lump sum; and
(ii) if such termination is an involuntary termination (excluding
death or total disability of Birnbach) or a termination by Birnbach for
Good Reason and Birnbach offers to continue to provide services as
contemplated by this Agreement (with Employer and its ultimate parent
company, if applicable, curing all grounds for termination by Birnbach for
Good Reason) and such offer is declined, then, subject to provisions of
Subparagraph 10(f)(iii) immediately below, Employer shall, during the
lesser period of the date of termination through the remaining Term or two
years following the date of termination, as liquidated damages, pay to
Birnbach monthly 1/12 of his Base Salary, as adjusted pursuant to
Subparagraph 3(b) hereof plus 1/12 of the average annual amount of cash
bonus and cash incentive compensation of Birnbach based on the average
amounts of such bonus and incentive compensation earned by Birnbach for the
two full Fiscal years preceding the Change in Control; provided
<PAGE>
(iii) if Birnbach becomes entitled to liquidated damages pursuant to
Subparagraph 10(f)(ii) above, Employer's obligation thereunder with respect
to cash damages shall be reduced by the amount of Birnbach's income, if
any, earned from providing personal services other than to Employer or its
corporate affiliates during the period of the lesser of the date of
termination through the remaining Term or two years following the date of
termination.
(g) For purposes of this Agreement, each of the events specified in the
following clauses (i) through (iii) of this Subparagraph 10(g) shall be deemed a
"Change in Control":
(i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial
owner of shares of Employer with respect to which twenty-five percent (25%)
or more of the total number of votes for the election of the Board of
Directors of Employer is eligible to be cast;
(ii) as a result of, or in connection with, any cash tender offer,
merger, or other business combination, sale of assets, or contested
election, or combination of the foregoing, the persons who were Directors
of Employer immediately prior to such event cease to constitute a majority
of the Board of Directors of Employer; or
(iii) the shareholders of Employer approve an agreement providing
either for a transaction in which Employer will cease to be an independent
publicly-owned company or for a sale or other disposition of all or
substantially all of the assets of Employer.
(h) In the event of the termination of Birnbach's employment for any
reason whatsoever, Employer shall make payments to the Trust under the Trust
Agreement in strict compliance with the provisions of Paragraph 5 hereof.
Moreover, in the event of the termination of Birnbach's employment pursuant to
Subparagraph 10(c), (e) or (f) hereof.
Employer shall within 14 days after such termination of employment transfer to
the Trust under the Trust Agreement sufficient cash to fully fund Employer's
obligations under this Agreement which have not theretofore been paid to
Birnbach, his spouse or estate.
<PAGE>
11. Severability. The provisions of this Agreement are severable and if
-------------
any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provisions to the extent enforceable in any jurisdiction shall
nevertheless be binding and enforceable.
12. Binding Agreement. The rights and obligations of Employer under this
------------------
Agreement shall inure to the benefit of, and shall be binding upon, Employer and
its successors and assigns and the rights and obligations of Birnbach under this
Agreement shall inure to the benefit of, and shall be binding upon, Birnbach and
his heirs and estate.
13. Arbitration. Any dispute or controversy arising under or in connection
------------
with this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association and judgment
upon the award rendered by the arbitrator or arbitrators shall be deemed to
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration; provided, however, that nothing in this
Paragraph 13 shall be construed so as to (a) deny Employer the right and power
to seek and obtain injunctive relief in a court of equity for any breach or
threatened breach by Birnbach of any of his covenants contained in Subparagraph
9(a) hereof or (b) deny Birnbach the right to seek specific performance of
Employer's obligations under this Agreement during the pendancy of any dispute
or controversy. Any arbitration to be undertaken pursuant to this Paragraph 13
shall take place in Fairfax, Virginia.
14. Reimbursement of Expenses. In the event any dispute or controversy
--------------------------
shall arise between Birnbach, his spouse or estate and Employer as to the terms
or interpretation of this Agreement, including but not limited to, any action
taken by Birnbach, his spouse or estate under Paragraph 13 or this Paragraph 14
or in defending against any action taken by Employer, Employer shall reimburse
Birnbach, his spouse or estate for all costs and expenses incurred by any of
them, including actual attorney's fees, as and when such costs and expenses are
incurred, in an amount not to exceed $75,000. Reimbursement of expenses shall be
paid within ten days of Birnbach, his spouse or estate furnishing to Employer
written evidence, which may be in the form, among other things, of a canceled
check or receipt, of any costs or expenses incurred by any of them.
<PAGE>
15. Notices. Any notice to be given under this Agreement shall be
--------
personally delivered in writing, or shall be deemed to have been duly given when
received, after it is posted in the United States mails, postage prepaid,
registered or certified, return receipt requested. If mailed to Employer, it
shall be addressed to Employer at its principal place of business, Attention:
Secretary, and if mailed to Birnbach, it shall be addressed to him at his home
address last known on the records of Employer, or at such other address or
addresses as either Employer or Birnbach may hereafter designate in writing to
the other.
16. Survival. The obligations of Employer under this Agreement to
---------
Birnbach, his spouse and estate shall survive any termination of Birnbach's
employment and the expiration of the Term hereof.
17. Waiver. The failure of either party to enforce any provision or
-------
provisions of this Agreement shall not in any way be construed as a waiver of
such provision or provisions as to any future violations thereof nor prevent
that party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy shall not constitute a waiver of such party's right to
assert any other legal remedies available to it or him under the circumstances.
18. Miscellaneous. This Agreement supersedes all prior agreements and
--------------
understandings between the parties with respect to the subject matter hereof and
may not be modified or terminated orally. No modification, termination, or
attempted waiver of this Agreement shall be valid unless made in writing and
signed by the party against whom the same is sought to be enforced. This
Agreement may be executed in multiple counterparts, each of which shall be an
original and all of which, when taken together, shall constitute one and the
same document. This Agreement shall be governed by and construed according to
the laws of the Commonwealth of Virginia.
19. Captions and Paragraph Headings. Captions and paragraph headings used
--------------------------------
herein are for convenience only, are not a part of this Agreement, and shall not
be used in construing it.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year First set forth above.
<PAGE>
/s/ Gerald M. Birnbach
-------------------------------------
Gerald M. Birnbach
ROWE FURNITURE CORPORATION
a Nevada Corporation
ATTEST:
/s/ Deborah C. Jacks By: /s/ Arthur H. Dunkin
-------------------- --------------------
SECRETARY
<PAGE>
EXHIBIT 13
PORTIONS OF THE ANNUAL REPORT TO
STOCKHOLDERS FOR THE YEAR ENDED
NOVEMBER 30, 1997
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------
(Fiscal Year Ended) 11/30/97 12/1/96
Net shipments $144,118,000 $142,723,000
Net earnings* 6,286,000 7,052,000
Net earnings per share - primary* 0.47 0.53
Stockholders' equity 39,442,000 40,188,000
Book value per share 3.14 3.03
Dividends paid per share 0.10 0.08
Current ratio 1.9 to 1 1.9 to 1
* The results of operations for 1997 include unusual charges, net of taxes, of
$2.7 million or $0.20 per share primarily associated with the writeoff of a
receivable from Levitz Furniture
Stock Price and Dividend Data
- -----------------------------
<TABLE>
<CAPTION>
Market Price Dividends
Quarter Ended High Low Paid Per Share
<S> <C> <C> <C> <C>
1997 March 2 9 3/4 7 7/8 $0.025
June 1 8 7/8 7 1/4 0.025
August 31 8 15/16 7 1/8 0.025
November 30 8 3/16 6 1/8 0.025
-----
$0.100
=====
1996 March 3 5 1/8 3 7/8 $0.020
June 2 5 5/8 4 1/8 0.020
September 1 5 7/8 4 3/4 0.020
December 1 9 5 0.020
-----
$0.080
=====
</TABLE>
The Company's shares are traded on the New York Stock Exchange under the symbol
ROW. On November 30, 1997, the Company had 1,100 stockholders of record.
- --------------------------------------------------------------------------------
Description of Business
- -----------------------
Founded in 1946, Rowe Furniture Corporation is a leading manufacturer of
medium-priced, high-quality upholstered furniture. We make sofas, sleepers,
chairs and other types of upholstered furniture at our facilities in Salem,
Virginia and Poplar Bluff, Missouri. We offer scores of styles and hundreds of
fabrics, and we price them to appeal to a broad cross-section of the market.
Annual Meeting
- --------------
The annual meeting of stockholders will be held at 10:00 a.m. on Tuesday, March
31, 1998 at the Roanoke Airport Marriott, Roanoke, Virginia. Copies of the
Company's Annual Report to the SEC on Form 10-K will be available in early
March. If you would like a copy without charge, please write A. H. Dunkin,
Secretary-Treasurer 239 Rowan Street, Salem, Virginia 24153.
<PAGE>
Management's Discussion And Analysis of Financial Condition And Results of
Operations
RESULTS OF OPERATIONS
Year Ended November 30, 1997
Compared to Year Ended December 1, 1996
Net shipments in 1997 increased by $1,395,000, or 1.0%, to $144,118,000 from
$142,723,000 in 1996. In the first half of 1997 compared to 1996, net shipments
decreased 2% negatively impacted by the elimination of certain unprofitable
product categories and a generally unfavorable business environment. This
decrease was more than offset by a 4.0% increase in net shipments in the second
half of the year, primarily from new product introductions, new dealers and
overall improvement in business conditions.
Gross profit in 1997 increased by $1,361,000, or 3.6%, to $38,954,000 from
$37,593,000 in 1996. As a percentage of shipments, gross profit in 1997
increased to 27.0% from 26.3% in 1996. Management believes that the percentage
increase was due primarily to favorable product mix and improvements in
manufacturing efficiencies.
Selling and administrative expenses in 1997 increased by $2,834,000, or 10.4%,
to $30,179,000 from $27,345,000 in 1996. As a percentage of shipments, selling
and administrative expenses in 1997 increased to 20.9% from 19.2% in 1996. The
increase in selling and administrative expenses resulted primarily from the
accounts receivable write-off of Levitz Furniture(approximately $3.9 million).
Excluding this unusual charge, expenses as a percentage of shipments declined
approximately 1%, primarily from a reduction in advertising and store opening
expenses at the Company-owned retail operations.
Operating income in 1997 decreased by $1,473,000, or 14.4%, to $8,775,000 from
$10,248,000 in 1996. The decrease in operating income was primarily attributable
to the write-off of the Levitz Furniture receivable, offset by the improvement
in gross profit and other reduced selling and administrative expenses.
Net interest expense in 1997 decreased by $64,000, or 18.7%, to $279,000 from
$343,000 in 1996 The decrease in net interest expense resulted from the
elimination of long-term debt and a decrease in short-term borrowings.
Other income in 1997 decreased by $92,000 to $1,390,000 from $1,482,000 in 1996.
The decrease in other income was due primarily to a vacancy in rental property
located in Christiansburg, Virginia, partially offset by a gain from sale of
rental property located in Leesburg, Florida.
<PAGE>
Net earnings decreased by $766,000, or 10.9%, to $6,286,000 in 1997 from
$7,052,000 in 1996. The decrease in net earnings was due primarily to the Levitz
Furniture accounts receivable write-off, partially offset by an increase in
gross profit percentage, lower other operating expenses and a reduction in the
effective income tax rate.
Year Ended December 1, 1996
Compared to Year Ended December 3, 1995
Net shipments in 1996 increased by $17,784,000, or 14.2%, to $142,723,000 from
$124,939,000 in 1995. The addition of new dealers and increased market share
from existing customers in combination with changes in the product mix enabled
the Company to reach the 1996 shipment level.
Gross profit in 1996 increased by $7,097,000, or 23.3%, to $37,593,000 from
$30,496,000 in 1995. Gross profit, as a percentage of shipments, in 1996
increased to 26.3% from 24.4% in 1995. Management believes that the percentage
increase was due primarily to higher volume, favorable product mix and
improvements in manufacturing efficiencies from less hiring and training
expenses and overtime requirements associated with expanding production capacity
in 1995.
Selling and administrative expenses in 1996 increased by $2,980,000, or 12.2%,
to $27,345,000 from $24,365,000 in 1995. As a percentage of shipments, selling
and administrative expenses in 1996 decreased to 19.2% from 19.5% in 1995. The
aggregate increase in selling and administrative expenses resulted primarily
from additional commissions, salaries and cost associated with the expansion of
the Company-owned Rowe ShowPlace program.
Operating income in 1996 increased by $4,542,000, or 79.6%, to $10,248,000 from
$5,706,000 in 1995. The increase in operating income was primarily attributable
to increases in shipments, reductions in costs of shipments, selling and
administrative expenses as a percentage of shipments and the restructuring
charge taken in 1995.
Net interest expense in 1996 decreased by $45,000, or 11.6%, to $343,000 from
$388,000 in 1995. The decrease in net interest expense resulted from a reduction
in the amount of long-term debt and lower interest rates on short-term
borrowings offset in part by an increase in short-term borrowings.
Other income in 1996 decreased by $4,803,000 to $1,482,000 from $6,285,000 in
1995. The decrease in other income was due primarily to the gain on the sale of
investment property that occurred in 1995, offset partially by increased rents
received from the replacement property.
Net earnings decreased by $155,000, or 2.2%, to $7,052,000 in 1996 from
$7,207,000 in 1995. The decrease in net earnings was due primarily to the gain
in 1995 on the sale of investment property, offset in part by a restructuring
charge. Excluding the
<PAGE>
previously indicated items, net earnings increased by 58% reflecting primarily
higher operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital requirements
with internally generated funds. Working capital needs along with capital
expenditures and purchases under the Company's stock repurchase program
necessitated use of short-term bank financing throughout most of 1997. The
Company purchased $815,000 shares in 1997. In November, the Board of Directors
authorized the purchase of up to 1 million additional shares. As of November 30,
1997, 950,000 shares remain eligible to be purchased under this authorization.
Net cash provided by operating activities was $11,207,000, $7,042,000 and
$8,588,000 in 1997, 1996 and 1995, respectively. Fluctuations in net cash
provided by operating activities are primarily the result of changes in net
income and changes in working capital accounts.
Capital expenditures were $3,261,000, $3,856,000 and $10,686,000 for 1997, 1996
and 1995, respectively. In fiscal 1995, capital expenditures were the result of
reinvesting proceeds from the sale of rental property into other
income-producing property with a cost of $6,883,000.
Financing activities utilized net cash of $9,331,000, $1,644,000 and $4,781,000
in 1997, 1996 and 1995, respectively. In fiscal year 1997, these activities
primarily consisted of the repurchase of the Company's common stock, dividends
paid to stockholders and a reduction in levels of short-term borrowings.
Management anticipates that the Company's capital expenditures for 1998 will
approximate $7.5 million. These expenditures will primarily be used to purchase
capital equipment at both wood and upholstery facilities for efficiency
improvements and capacity expansions; including anticipated expenditures for The
Wexford Collection, Inc., (see note 12 of Notes to Financial Statements) along
with additions and upgrades to computerized systems and expansion of additional
Company-owed retail locations.
The amount outstanding under the lines of credit was $1,731,000. As of November
30, 1997, the Company has a total of $35,000,000 available under existing lines
of credit.
The Company believes that net cash provided by operating activities and
available bank lines of credit will be sufficient to fund anticipated growth and
to meet the Company's foreseeable capital requirements and operating needs
through 1998.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
November 30, December 1,
1997 1996
($ Thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 850 $ 1,897
Accounts receivable (net of allowance
for losses of $316,000 in 1997 and $300,000 in 1996) (Note 8) 20,789 22,726
Inventories (Note 1)
Finished goods 3,500 3,037
Work in process 2,822 2,636
Raw materials and supplies 8,132 6,710
---------- ----------
14,454 12,383
Deferred income tax asset (Note 7) 194 284
Prepaid expenses 500 492
---------- ----------
Total current assets 36,787 37,782
---------- ----------
PROPERTY AND EQUIPMENT (Note 1)
Land 249 249
Buildings and leasehold improvements 17,071 16,606
Machinery and equipment 27,037 24,522
---------- ----------
44,357 41,377
Less accumulated depreciation 29,504 26,987
---------- ----------
Net property and equipment 14,853 14,390
---------- ----------
OTHER ASSETS
Cash value of life insurance (Note 3) 3,638 3,518
Investment property (net of accumulated
depreciation of $1,902,000 in 1997 and
$1,895,000 in 1996) (Note 5) 8,209 8,402
Miscellaneous 223 188
---------- ----------
Total other assets 12,070 12,108
---------- ----------
$ 63,710 $ 64,280
========== ==========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 420
Short-term bank borrowings (Note 2) 1,731 3,610
Accounts payable 13,538 11,212
Accrued expenses:
Compensation 1,019 1,091
Income taxes 857 988
Other 1,847 1,808
Deferred compensation - current portion (Note 3) 391 421
---------- ----------
Total current liabilities 19,383 19,550
DEFERRED COMPENSATION (Note 3) 2,961 2,478
DEFERRED INCOME TAX LIABILITY (Note 7) 1,924 2,064
---------- ----------
Total liabilities 24,268 24,092
---------- ----------
</TABLE>
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5 and 12)
STOCKHOLDERS' EQUITY (Note 6)
COMMON STOCK, par value $1 per share:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C> <C>
Authorized shares 20,000,000 20,000,000
Issued shares 14,667,783 14,564,103 14,668 14,564
Outstanding shares 12,543,522 13,254,858
CAPITAL IN EXCESS OF PAR VALUE 8,633 8,349
RETAINED EARNINGS 29,011 24,033
---------- ----------
52,312 46,946
LESS TREASURY STOCK - 2,124,261 shares in
1997 and 1,309,245 shares in 1996, at cost (12,870) (6,758)
---------- ----------
Total stockholders' equity 39,442 40,188
---------- ----------
$ 63,710 $ 64,280
========== ==========
Ratio of current assets to current liabilities 1.9 to 1 1.9 to 1
Ratio of cash and receivables
to current liabilities 1.1 to 1 1.3 to 1
</TABLE>
See notes to consolidated financial statements
<PAGE>
Consolidated Statements Of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
11-30-97 12-1-96 12-3-95
------------------------------------------------
(52 weeks) (52 weeks) (53 weeks)
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) In Cash
Cash flows from operating activities:
Cash received from customers $142,136 $138,270 $122,918
Cash paid to suppliers and employees (128,135) (128,641) (113,063)
Income taxes paid, net of refunds (3,781) (4,013) (1,911)
Interest paid (279) (343) (388)
Interest received 306 479 232
Other receipts - net 960 1,290 800
--------- --------- ---------
Net cash and cash equivalents provided by
operating activities 11,207 7,042 8,588
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 338 35 6,594
Capital expenditures (3,261) (3,856) (10,686)
Sale (acquisitions) of marketable securities - (3) 137
--------- --------- ---------
Net cash used in investing activities (2,923) (3,824) (3,955)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) under line of credit (1,879) 1,475 (601)
Proceeds from issuance of long-term debt - - 200
Payments to reduce long-term debt (420) (634) (455)
Proceeds from issuance of common stock 388 249 122
Dividends paid (1,308) (1,075) (1,090)
Purchase of treasury stock (6,112) (1,659) (2,957)
--------- --------- ---------
Net cash used in financing activities (9,331) (1,644) (4,781)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1,047) 1,574 (148)
Cash at beginning of year 1,897 323 471
--------- --------- ---------
Cash at end of year $ 850 $ 1,897 $ 323
========= ========= =========
</TABLE>
<PAGE>
Reconciliation Of Net Earnings To Net Cash
Provided By Operating Activities:
<TABLE>
<S> <C> <C> <C>
Net earnings $ 6,286 $ 7,052 $ 7,207
--------- -------- -------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,777 2,487 2,175
Provision for deferred compensation 979 1,017 634
Payments made for deferred compensation (526) (426) (449)
Deferred income taxes (50) (320) 2,150
Provision for losses on accounts receivable 3,919 490 179
Loss (gain) on disposition of assets (Note 5) (124) 287 (5,253)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,982) (4,453) (2,021)
Decrease (increase) in inventories (2,071) 63 (1,127)
Decrease (increase) in prepaid expenses (8) 594 (293)
Decrease (increase) in cash value of
life insurance (120) (116) (140)
Decrease (increase) in other assets (35) 15 320
Increase (decrease) in accounts payable 2,326 (466) 4,080
Increase (decrease) in accrued expenses (164) 818 1,126
--------- -------- -------
Total adjustments 4,921 (10) 1,381
--------- -------- -------
Net cash provided by operating activities $ 11,207 $ 7,042 $ 8,588
========= ======== =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
Consolidated Statements Of Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Year Ended
11/30/97 12/1/96 12/3/95
(52 weeks) (52 weeks) (53 weeks)
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net shipments (Note 8) $144,118 $ 142,723 $124,939
Cost of shipments 105,164 105,130 94,443
-------- --------- --------
Gross profit 38,954 37,593 30,496
Selling and administrative expenses (Note 8) 30,179 27,345 24,365
Restructuring charge (Note 9) - - 425
-------- --------- --------
Operating income 8,775 10,248 5,706
Interest expense (279) (343) (388)
Other income, net (Note 5) 1,390 1,482 6,285
-------- --------- --------
Earnings before taxes 9,886 11,387 11,603
Taxes on income (Note 7) 3,600 4,335 4,396
-------- --------- --------
Net Earnings $ 6,286 $ 7,052 $ 7,207
======== ========= ========
Net Earnings Per Share - Primary (Notes 1 and 11) $ 0.47 $ 0.53 $ 0.53
======== ========= ========
Weighted average shares outstanding and share
equivalents - primary 13,333 13,370 13,607
======== ========= ========
Net Earnings Per Share - Fully Diluted (Notes 1 and 11) $ 0.47 $ 0.51 $ 0.53
======== ========= ========
Weighted average shares outstanding and share
equivalents - fully diluted 13,333 13,803 13,607
======== ========= ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
Consolidated Statements of Stockholders' Equity
Year Ended
November 30, 1997, December 1, 1996 and December 3, 1995
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Capital in
Shares $1 Par Excess of
Issued Value Par Value
-----------------------------------------------------
<S> <C> <C> <C>
Balance at November 27, 1994 14,304,177 $ 14,304 $ 8,238
Acquisition of treasury stock
Cash dividends paid, $0.08 per share
Exercise of stock options 111,927 112 10
Net earnings for the year ended
December 3, 1995
-------------- -------------- --------------
Balance at December 3, 1995 14,416,104 14,416 8,248
Acquisition of treasury stock
Cash dividends paid, $0.08 per share
Exercise of stock options 147,999 148 101
Net earnings for the year ended
December 1, 1996
-------------- -------------- --------------
Balance at December 1, 1996 14,564,103 14,564 8,349
Acquisition of treasury stock
Cash dividends paid, $0.10 per share
Exercise of stock options 103,680 104 284
Net earnings for the year ended
November 30, 1997
-------------- -------------- --------------
Balance at November 30, 1997 14,667,783 $ 14,668 $ 8,633
============== ============== ==============
<CAPTION>
Treasury Stock
-----------------------------
Retained Number of
Earnings Shares Cost
------------- -----------------------------
<S> <C> <C> <C>
Balance at November 27, 1994 $ 11,939 378,243 $ 2,142
Acquisition of treasury stock 627,328 2,957
Cash dividends paid, $0.08 per share (1,090)
Exercise of stock options
Net earnings for the year ended
December 3, 1995 7,207
-------------- -------------- --------------
Balance at December 3, 1995 18,056 1,005,571 5,099
Acquisition of treasury stock 303,674 1,659
Cash dividends paid, $0.08 per share (1,075)
Exercise of stock options
Net earnings for the year ended
December 1, 1996 7,052
-------------- -------------- --------------
Balance at December 1, 1996 24,033 1,309,245 6,758
Acquisition of treasury stock 815,016 6,112
Cash dividends paid, $0.10 per share (1,308)
Exercise of stock options
Net earnings for the year ended
November 30, 1997 6,286
-------------- -------------- --------------
Balance at November 30, 1997 $ 29,011 2,124,261 $ 12,870
============== ============== ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>
Five Year Summary
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net shipments $144,118 $ 142,723 $124,939 $111,201 $ 88,961
Gross profit 38,954 37,593 30,496 28,687 22,401
Operating income 8,775 10,248 5,706 9,458 6,098
Net earnings (1)(2) $ 6,286 $ 7,052 $ 7,207 $ 6,782 $ 5,090
Working capital $ 17,404 $ 18,232 $ 14,907 $ 16,605 $ 14,112
Total assets 63,710 64,280 58,035 48,098 43,185
Long-term debt - - 569 864 2,712
Stockholders' equity $ 39,442 $ 40,188 $ 35,621 $ 32,339 $ 24,873
Net earnings per share - primary (1)(2) $ 0.47 $ 0.53 $ 0.53 $ 0.47 $ 0.37
Weighted average shares outstanding and
share equivalents - primary 13,333 13,370 13,607 14,563 13,689
Net earnings per share - fully diluted (1)(2) $ 0.47 $ 0.51 $ 0.53 $ 0.47 $ 0.36
Weighted average shares outstanding and
share equivalents - fully diluted 13,333 13,803 13,607 14,563 14,197
Cash dividends paid per share $ 0.10 $ 0.08 $ 0.08 $ 0.06 $ 0.04
</TABLE>
Weighted average shares and per share amounts have been adjusted to give
retroactive effect to three-for-two stock splits declared December 8, 1992,
September 9, 1993, December 16, 1993 and November 10, 1994.
(1) The results of operations for 1997 include unusual charges, net of taxes,
of $2.7 million, or $0.20, per share primarily associated with the writeoff
of a receivable from Levitz Furniture.
(2) The results of operations for 1995 include an after-tax gain on the sale of
property of approximately $3.0 million, or $0.22 per share and an after-tax
restructuring charge of $265,000, or $0.02 per share.
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business-The Company is primarily a manufacturer of upholstered
household furniture, selling throughout the United States and in some
international markets. Sales are recognized when products are shipped and
invoiced to customers. Substantially all of the Company's trade accounts
receivable are from companies in the retail furniture industry. Management
periodically performs credit evaluations of its customers and generally does not
require collateral. The Company uses credit insurance to minimize the risk on
certain accounts. The Company has no concentrated credit risk with any
individual customer except as described in Note 8.
Principles of Consolidation-The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany
transactions and balances have been eliminated.
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Inventories-Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Equipment and Depreciation-Property and equipment are stated at cost.
For financial reporting purposes, depreciation is computed over the estimated
useful lives of the assets using accelerated methods on substantially all
property acquired prior to December 1, 1984. The straight-line method is used
for all property acquired after November 30, 1984. Accelerated methods are used
for income tax purposes. Assets are depreciated for financial reporting purposes
based on estimated useful lives as follows: building and improvements (5 to 45
years); machinery and equipment (3 to 10 years); leasehold improvements (terms
of leases).
Long-Lived Assets-Long-lived assets, such as property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value. This
policy is in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." No impairment losses have been necessary through
November 30, 1997.
Fair Value of Financial Instruments-Financial instruments of the Company include
long-term debt and line of credit agreements. Based upon the current borrowing
rates
<PAGE>
available to the Company, estimated fair values of these financial instruments
approximate their recorded carrying amounts.
Advertising Costs - Costs incurred for advertising are expensed when incurred.
Costs incurred under cooperative advertising programs are recognized when the
related revenues are recognized. The charges to expense were $3,638,000,
$4,105,000 and $3,861,000 in 1997, 1996 and 1995, respectively.
Income Taxes-Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting For Income
Taxes."
Earnings Per Share-The computations of primary earnings per share are based on
the weighted average number of common shares outstanding during the period plus,
in periods in which they have a dilutive effect, the effect of common shares
contingently issuable from stock options. The fully diluted per share
computations reflect additional dilution related to the stock options due to the
use of the market price at the end of each period, when higher than the average
price for such period (See Note 11).
Statement of Cash Flows-For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Fiscal Year-The Company's accounting fiscal year end is the Sunday of each year
closest to November 30. The fiscal years ended November 30, 1997, December 1,
1996 and December 3, 1995, were comprised of 52, 52 and 53 weeks, respectively.
Reclassifications-Certain prior year amounts have been reclassified to conform
to current year presentation.
NOTE 2-SHORT-TERM BORROWINGS
The Company has unsecured short-term lines of credit of $35,000,000 with banks
at rates not to exceed the prime interest rate. The following summarizes
aggregate short-term borrowings in 1997, 1996 and 1995:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Amount outstanding at year end $1,731,000 $3,610,000 $2,135,000
Maximum amount outstanding at
any month end $5,394,000 $7,710,000 $4,685,000
Average borrowings (based on
weighted daily balances) $3,840,000 $4,256,000 $4,015,000
Weighted average interest rate
during the year 6.2% 6.5% 7.0%
Weighted average interest rate
at year end 6.4% 6.3% 6.5%
</TABLE>
NOTE 3-DEFERRED COMPENSATION PLANS
Effective December 1, 1986, as amended in 1991, the Company established deferred
compensation contracts for certain officers of the Company. The contracts fixed
a minimum level for retirement benefits to be paid to participants based on age
at retirement with the Company. The contracts are not funded. Charges to expense
were $457,000 in 1997, $488,000 in 1996 and $402,000 in 1995.
The Company also has deferred compensation agreements with key employees.
Vesting is based upon age and years of service. Life insurance contracts have
been purchased which may be used to fund these agreements. The charges to
expense were $107,000 in 1997, $174,000 in 1996 and $150,000 in 1995.
The Company has a Cash-Or-Deferred Non-Qualified Executive Retirement Plan for
certain executive officers of the Company. The Plan enables participants to
defer income on a pre-tax basis and is not funded. The Company matches a portion
of the deferral for participants. The charges to expense were $132,000 in 1997,
$105,000 in 1996 and $82,000 in 1995.
NOTE 4-EMPLOYEE BENEFIT PLANS
The Company contributed $158,000 in 1997, $124,000 in 1996 and $141,000 in 1995
to the Merged 401(k) and Employee Stock Ownership Plan (401(k) Plan).
The Company made contributions to the Merged Thrift and Employee Stock Ownership
Plan (Thrift Plan) in the amount of $259,000 in 1997, $208,000 in 1996 and
$213,000 in 1995.
Substantially all employees are covered under the 401(k) Plan or the Thrift
Plan.
<PAGE>
NOTE 5-COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under long-term real estate leases for offices,
showroom and retail locations expiring at various dates through 2007 with
certain renewal options. Rental payments charged to expense were $1,762,000 in
1997, $1,399,000 in 1996 and $1,130,000 in 1995.
The Company is a lessor of its investment properties primarily under long-term
operating leases. The lease arrangements have initial terms of three to twelve
years and some contain provisions to increase the monthly rentals at specific
intervals. Rental income, net of commissions, was $1,399,000 in 1997, $1,442,000
in 1996 and $1,005,000 in 1995 and is included in other income in the
accompanying statements of income.
In February, 1995, the Company completed the sale of its 175,000 sq. ft.
warehouse in Sylmar, California. The warehouse had been held by the Company as
investment property. The after-tax gain was approximately $3.0 million, net of
lost rents during the disposition period. In June of 1995, the Company purchased
other rental income-producing property to permit a "tax-deferred" exchange with
the proceeds realized from this transaction. Accordingly, deferred income taxes
payable were recorded as "Basis of investment property" (Note 7).
Minimum lease commitments at November 30, 1997 under long-term operating real
estate leases are as follows:
Lease Lease
Expense Receipts
------- --------
1998 $ 1,824,000 $ 1,412,000
1999 1,833,000 1,438,000
2000 1,206,000 1,366,000
2001 1,038,000 1,260,000
2002 923,000 1,224,000
Thereafter 3,276,000 2,770,000
---------- ---------
$10,100,000 $9,470,000
=========== ==========
In addition, the Company is obligated through a dedicated contract carriage
agreement for delivery services for periods ranging from 1 to 7 years. Current
monthly expense is $220,000 plus a variable mileage charge.
<PAGE>
Health Insurance Plan
The Company maintains a self-insurance program for that portion of health care
costs not covered by insurance. The Company is liable for claims up to $100,000
per family annually, and aggregate claims up to $4,300,000 in 1997.
Self-insurance costs are accrued based upon the aggregate of the liability for
reported claims and an estimated liability for claims incurred but not reported.
Employment Agreements
The Company has employment agreements with certain key officers of the Company
which provide for salary continuation of two years in the event of termination
of employment without cause. In addition, the Company entered into an agreement
with an officer in December, 1993 which provides annual compensation of
$725,000, adjusted for changes in the consumer price index, through November 30,
2001.
NOTE 6 -COMMON STOCK
At November 30, 1997, the Company had two stock option plans, which are
described below. The Company applies APB Opinion 25, Accounting for Stock Issued
to Employees, and related Interpretation in accounting for the Plan. Under APB
Opinion 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
Under the 1993 incentive stock option plan, 1,468,125 shares of unissued common
stock or treasury stock have been made available for grants. These options are
exercisable for a term of from five to ten years from the date of grant and have
been adjusted for stock splits.
Under the 1983 incentive stock option plan (as amended), 2,847,655 shares of
unissued common stock or treasury stock were available for grants. These options
are exercisable for a term of five to ten years from the date of grant. The
options were granted at market value on the date of grant and have been adjusted
for stock splits. Effective January 28, 1993, no further options may be granted
under this plan.
FASB Statement 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimated the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995,
respectively; dividend
<PAGE>
yield of one percent for all years; expected volatility of 32.7, 33.7 and 32.2
percent; risk-free interest rates of 6% for all options; and expected lives of 4
and 8 years.
Under the accounting provisions of FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income
As reported $6,286,000 $7,052,000 $7,207,000
Pro forma $6,209,000 $6,239,000 $7,123,000
Primary earnings per share
As reported $0.47 $0.53 $0.53
Pro forma $0.47 $0.47 $0.52
Fully diluted earnings per share
As reported $0.47 $0.51 $0.53
Pro forma $0.47 $0.45 $0.52
</TABLE>
A summary of the status of the Company's two fixed stock option plans as of the
balance sheet date and changes during the years ending on those dates,is
presented below:
<TABLE>
<CAPTION>
November 30, 1997 December 1, 1996 December 3, 1995
----------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,084,224 $4.89 884,398 $3.76 956,785 $3.43
Granted 33,500 8.81 390,200 6.28 59,500 4.52
Exercised (103,680) 3.74 (147,999) 1.68 (111,927) 1.09
Forfeited (18,750) 4.16 (42,375) 5.28 (19,960) 5.16
----------- ----------- -----------
Outstanding and
Exercisable
at end of year 995,294 $5.16 1,084,224 $4.89 884,398 $3.76
=========== =========== ===========
Weighted-
average fair value
of options granted
during the year $3.30 $3.65 $2.08
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table summarizes information about fixed stock options outstanding
at November 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise November 30, Contractual Exercise November Exercise
Prices 1997 Life Price 30, 1997 Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.79 - $1.11 118,957 4 $1.03 118,957 $1.03
2.70 - 3.07 154,310 5 2.89 154,310 2.89
4.13 - 5.50 459,927 6 5.13 459,927 5.13
7.63 - 8.88 221,600 8 7.80 221,600 7.80
11.75 40,500 6 11.75 40,500 11.75
</TABLE>
NOTE 7-TAXES ON INCOME
Provisions for income taxes in the consolidated statements of income consisted
of the following components:
1997 1996 1995
---- ---- ----
Current $3,650,000 $4,655,000 $2,246,000
Deferred (50,000) (320,000) 2,150,000
---------- ---------- ----------
Total taxes on income $3,600,000 $4,335,000 $4,396,000
========== ========== ==========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The sources of
the temporary differences and their effects on deferred taxes are as follows:
1997 1996
---- ----
Bad debt reserve $ 111,000 $ 111,000
Deferred compensation 1,304,000 1,138,000
Other 13,000 87,000
-------------- ------------
Gross deferred tax assets 1,428,000 1,336,000
------------ ------------
Basis of investment property (Note 5) 2,027,000 2,065,000
Depreciation 1,056,000 967,000
Prepaid expenses 75,000 84,000
------------- -----------
<PAGE>
Gross deferred tax liabilities 3,158,000 3,116,000
------------ ------------
Net deferred tax liability $(1,730,000) $(1,780,000)
============ ============
Included in the balance sheet:
Deferred income tax - current $ 194,000 $ 284,000
Deferred income tax liabilities -
non-current (1,924,000) (2,064,000)
----------- -----------
Net deferred tax liability $(1,730,000) $(1,780,000)
============ ============
The following summary reconciles taxes at the federal statutory tax rate with
the actual taxes:
1997 1996 1995
---- ---- ----
Income tax expense
computed at the statutory rate $3,360,000 $3,885,000 $3,945,000
State income taxes, net of federal
income tax benefit 304,000 325,000 450,000
Life insurance transactions (40,000) (26,000) (45,000)
Other items, net (24,000) 151,000 46,000
----------- ---------- ----------
Total taxes on income $3,600,000 $4,335,000 $4,396,000
========== ========== ==========
NOTE 8-MAJOR CUSTOMER INFORMATION
Shipments to one customer (Levitz Furniture) as a percent of net shipments,
amounted to 16% in 1997, 17% in 1996 and 16% in 1995. Receivables from this
customer as a percent of year-end receivables amounted to 14% in 1997 and 22% in
1996. Shipments to the Company's top ten customers, as a percent of net
shipments, amounted to 34% in 1997, 35% in 1996 and 32% in 1995.
Levitz Furniture (Levitz), a major customer of the Company, filed a voluntary
petition for protection under Chapter XI of the federal bankruptcy code on
September 5, 1997. Although there may be some chance of recovery of a portion of
the receivable, the Company wrote off the balance of its receivable from Levitz
in full ($3.9 million) as of the bankruptcy date due to the uncertainty of
future recoveries, if any.
Levitz has received debtor-in-possession financing commitments. Accordingly, the
Company has resumed shipments to Levitz.
NOTE 9-RESTRUCTURING CHARGE
<PAGE>
In May, 1995, the Company accrued $425,000 in restructuring charges from a
corporate reorganization of the manufacturing process. These costs consisted
primarily of termination benefits for 21 administrative/manufacturing employees.
NOTE 10-QUARTERLY FINANCIAL INFORMATION (Unaudited, $thousands, except per
share amounts)
Quarter First Second Third Fourth
- ------- ----- ------ ----- ------
1997
Net shipments $35,416 $32,912 $34,335 $41,455
Gross profit 9,793 8,680 9,048 11,433
Net earnings (loss)(2) 2,110 1,693 (904) 3,387
Net earnings (loss) per share -
primary and fully diluted (1)(2) 0.15 0.13 (0.07) 0.26
1996
Net shipments $34,793 $35,080 $34,768 $38,082
Gross profit 7,558 8,806 9,692 11,537
Net earnings 830 1,332 1,907 2,983
Net earnings per share -
primary (1) 0.06 0.10 0.14 0.23
Net earnings per share - fully
diluted (1) 0.06 0.10 0.14 0.22
(1) Earnings per share calculations for each of the quarters are based on the
weighted average shares outstanding for each period. The sum of the quarters may
not necessarily be equal to the full year earnings per share amounts.
(2) Earnings for the third quarter of 1997 include the effects of unusual
charges of $2.7 million, after tax, relating primarily to the write-off of the
Levitz Furniture receivable, (see Note 8).
NOTE 11-RECENT ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share", which established new standards for computations of
earnings per share. Statement No. 128 will be effective for periods ending after
December 15, 1997 and will require presentation of: (1) "Basic Earnings per
Share", computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period and (2)
"Diluted Earnings per Share", which gives effect to all dilutive potential
common shares that were outstanding during the period, by increasing the
denominator to include the number of additional common shares that would have
been outstanding if the dilutive potential common shares had
<PAGE>
been issued. Had SFAS 128 been effective for the years ended 1997 and 1996,
basic and diluted earnings per share would have been as follows:
<PAGE>
1997 1996
---- ----
Basic earnings per share $0.49 $0.53
Diluted earnings per share $0.47 $0.51
NOTE 12-SUBSEQUENT EVENT
On January 1, 1998, the Company acquired, through its newly created subsidiary,
The Wexford Collection, Inc., the assets and assumed certain liabilities of
J & M Designs, Ltd. - Carson, California, a manufacturer of solid wood
reproductions. The purchase price will be paid in cash and contingent payments
based on future earnings. Current lines of credit will be used to fund the
operating and capital requirements of this new entity.
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Rowe Furniture Corporation is responsible for the
accuracy and consistency of all the information contained in the annual report,
including all accompanying consolidated financial statements. The statements
have been prepared to conform with the generally accepted accounting principles
and include amounts based on management's estimates and judgments.
Rowe Furniture Corporation maintains a system of internal accounting controls
designed to provide reasonable assurance that financial records are accurate,
Company assets are safeguarded, and financial statements present fairly the
consolidated financial position of the Company.
The Audit Committee of the Board of Directors, composed solely of outside
directors, reviews the scope of audits and the findings of the independent
certified public accountants. The auditors meet regularly with the Audit
Committee to discuss audit and financial issues.
BDO Seidman, LLP, the Company's independent certified public accountants, has
audited the financial statements prepared by management. Their opinion on the
financial statements is presented as follows.
Gerald M. Birnbach Arthur H. Dunkin
Chairman of the Board and President Secretary-Treasurer
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Rowe Furniture Corporation
Salem, Virginia
We have audited the accompanying consolidated balance sheets of Rowe Furniture
Corporation and subsidiaries as of November 30, 1997 and December 1, 1996 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended November 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rowe Furniture
Corporation and subsidiaries at November 30, 1997 and December 1, 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended November 30, 1997 in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
High Point, North Carolina
December 22, 1997, except for Note 12, which is as of January 2, 1998.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OFFICERS DIRECTORS
<S> <C> <C>
Gerald M. Birnbach Gerald M. Birnbach Keith J. Rowe
Chairman of the Board and President Chairman of the Board and President Private Investor
Arthur H. Dunkin Richard E. Cheney Sidney J. Silver
Secretary-Treasurer Former Chairman Emeritus of the Partner - Silver, Freedman &
Board of Hill and Knowlton, Inc. Taff, LLP
Harvey I. Ptashek
Senior Vice President Arthur H. Dunkin Allan Tofias
Secretary-Treasurer Former Managing Partner -
Tofias, Fleishman, Shaprio &
Harvey I. Ptashek Company, P.C.
Senior Vice President
Gerald O. Woodlief
Charles T. Rosen Retired - Senior Vice President
Vice President - Luth Research, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SUBSIDIARY OFFICERS:
<S> <C> <C>
ROWE INDUSTRIES, INC.
Wildon H. Adkins, Jr. John R. Clark D. Wayne Owens
Vice President - Upholstery Design Assistant Vice President - Assistant Vice President -
Human Resources Safety
Garry W. Angle
Assistant Treasurer Timothy J. Fortune Bruce A. Rotramel
Vice President - Human Resources Assistant Secretary
Kenneth E. Bentz
Vice President Jack G. Heaton J. Steve Shelor
Vice President Vice President
Barry A. Birnbach
Vice President - Special Account Sales Corey J. Keifetz Richard W. Sorensen
Vice President Vice President
Bruce M. Birnbach
Vice President - Merchandising - Mark S. Moseley
Vice President - Marketing
ROWE SHOWPLACE, INC THE WEXFORD COLLECTION, INC.
Robert M. O'Malley Mary Beck
Executive Vice President President
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESSES
<S> <C> <C>
CORPORATE HEADQUARTERS SHOWROOM TRANSFER AND DIVIDEND
1650 Tysons Boulevard, Suite 710 High Point, North Carolina DISBURSING AGENT
McLean, Virginia 22102 Wachovia Bank of North
703-847-8670 Carolina, N.A.
GENERAL COUNSEL Winston-Salem, NC 27102
UPHOLSTERY MANUFACTURING PLANTS Silver, Freedman & Taff, LLP 800-633-4236
Poplar Bluff, Missouri Washington, D.C. 20005
Salem, Virginia
AUDITORS DIVIDEND REINVESTMENT
WOODWORKING PLANTS BDO Seidman, LLP AND STOCK PURCHASE PLAN
Morehouse, Missouri High Point, North Carolina 27260 Wachovia Shareholder Services
Salem, Virginia P. O. Box 8218
Boston, Massachusetts 02266
The Wexford Collection, Inc. 800-633-4236
Carson, California
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<PAGE>
Exhibit (21)
ROWE FURNITURE CORPORATION
AND WHOLLY-OWNED SUBSIDIARIES
LIST OF SUBSIDIARIES
--------------------
The Company has five wholly-owned subsidiaries:
(1) Rowe Industries, Inc., a Virginia Corporation
(2) Rowe Properties, Inc., a California Corporation
(3) Rowe ShowPlace, Inc., a Virginia Corporation
(4) Rowe Worldwide, Inc., a US Virgin Islands Corporation
(5) The Wexford Collection, Inc., a California Corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
Exhibit (23)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Rowe Furniture Corporation
Salem, Virginia
We hereby consent to the incorporation by reference of our reports dated
December 22, 1997, except for Note 12 which is as of January 2, 1998, relating
to the consolidated financial statements and schedule of Rowe Furniture
Corporation appearing in the Company's Annual Report on Form 10-K for the year
ended November 30, 1997 into the Company's previously filed registration
statements file numbers 2-94943, 33-90486, 33-77766, and 33-77768.
High Point, North Carolina /s/ BDO SEIDMAN, LLP
February 12, 1998 --------------------
BDO SEIDMAN, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 850
<SECURITIES> 0
<RECEIVABLES> 20,789
<ALLOWANCES> 316
<INVENTORY> 14,454
<CURRENT-ASSETS> 36,787
<PP&E> 44,357
<DEPRECIATION> 29,504
<TOTAL-ASSETS> 63,710
<CURRENT-LIABILITIES> 19,383
<BONDS> 0
14,668
0
<COMMON> 0
<OTHER-SE> 24,774
<TOTAL-LIABILITY-AND-EQUITY> 63,710
<SALES> 144,118
<TOTAL-REVENUES> 144,118
<CGS> 105,164
<TOTAL-COSTS> 105,164
<OTHER-EXPENSES> 28,789
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<INTEREST-EXPENSE> 279
<INCOME-PRETAX> 9,886
<INCOME-TAX> 3,600
<INCOME-CONTINUING> 6,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,286
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
